Untangling the web of options presented to small employers under the Families First Coronavirus Response Act (FFCRA) and Coronavirus Aid, Relief, and Economic Security (CARES) Act can seem daunting. A small employer (generally one with no more than 500 employees) has a number of options, as well as obligations, to consider when adjusting to challenges presented by the COVID-19 pandemic. In broad terms, the obligations and solutions presented under the FFCRA and the CARES Act can be divided into (1) paid leave obligations; (2) financial assistance; (3) tax incentives; and (4) expanded unemployment insurance benefits for displaced employees. Understanding those programs is critical to successfully navigating the current business climate. So how may a small employer approach these issues?
The first step for a small employer is to take stock of its own business realities by considering questions such as:
- What level of payroll can the business currently support?
- What is the company’s employee wage profile (i.e., number of employees and wages earned by classes of employees/individual employees)?
- Which employees are critical to maintaining operations?
- Do the company’s paid leave policies require paid leave to be paid out upon termination, and if so, what is the potential payout cost for employees who are laid off or discharged?
- How are the company’s benefits programs affected by paid leave, leave without pay, layoff, termination, or business cessation?
With the answers to these questions in mind, small employers can then form a plan for how to best comply with, and benefit from, the FFCRA and the CARES Act.
First things first: while the CARES Act offers options, the FFCRA imposes obligations. Employees who become sick with COVID-19 or who must care for family members with COVID-19, and those who are prevented from getting to work by a governmental quarantine or isolation order, are entitled to two weeks of paid sick leave. Additionally, employees who must miss work to care for children whose schools or childcare centers have closed are eligible for up to 12 weeks of paid leave. The pay requirement is limited by weekly and aggregate maximums, and employers are eligible for a dollar-for-dollar tax credit. There are exceptions for employers of healthcare workers and first responders, and for certain employers of fewer than 50 employees. Laying off or discharging employees to avoid paying benefits is not permitted. So, before considering options offered under the CARES Act, small employers may want to make sure that they take care of their paid leave obligations.
CARES Act—Financial Assistance for Small Businesses
The goal of the CARES Act is to help employers keep employees on the job. That’s where financial assistance comes into play. The CARES Act provides the opportunity for forgivable loans administered by the U.S. Small Business Administration (SBA) that may be used to make payroll and to pay business overhead costs such as lease obligations, utilities, and mortgage interest. Small businesses may be able to borrow up to 2.5 times their payrolls, up to a maximum loan of $10 million. Again, the goal of the CARES Act is to maintain employment, so loan forgiveness is contingent on maintaining head count and payroll. Businesses can apply for CARES Act loans via lenders approved by the SBA. (Note that while the proceeds may be used for certain business overhead, the amount of the loan is solely dependent on payroll.)
CARES Act—Tax Incentives
There are also tax incentives for small employers. Employers can take a tax credit against payroll taxes paid up to $5,000 per employee. Employers can defer payment of payroll taxes, and allowable tax deductions for net operating losses have been expanded. Finally, employers that sponsor single-employer pension plans may defer payments of 2020 contributions to January 1, 2021.
CARES Act—Unemployment Expansion
Unfortunately, even with economic assistance offered under the CARES Act, some employers may find that they have no choice but to make reductions in force. Others may have to limit or pause operations because of state and local “stay at home” orders or because they have concluded that it is necessary to protect their workforces. So, another important question to address is this: what does the CARES Act offer displaced employees? The CARES Act expands existing state-administered unemployment insurance programs in several significant respects by creating Pandemic Unemployment Insurance.
First, the CARES Act expands the scope of eligibility for unemployment benefits by including not only those persons who were laid off or discharged, but also those who cannot report for work because of circumstances associated with COVID-19.
Second, the CARES Act provides funding to enable states to waive the customary waiting period (usually one week) before eligibility for benefits commences.
Third, the CARES Act provides funding to extend the period of benefit eligibility by 13 weeks (up to December 31, 2020) in addition to the benefit period provided under the existing state plan. Finally, the CARES Act provides a supplemental payment of $600 per week for up to 16 weeks (or through July 31, 2020) to be paid to the employee in addition to the state benefit that he or she would otherwise receive.
Lastly, the CARES Act includes provisions for employers that have circumstances that might allow them to keep workers on the job, but at reduced hours, by providing additional funding to the states to operate short-term compensation (STC) programs (sometimes also called “work-share programs”). Under an STC, employees can continue to work the hours that are available and still be eligible for a pro-rated share of unemployment benefits to defray their lost time. STC programs must be state approved, and not all states have adopted them, so employers that are interested in this option may want to investigate whether an STC program is available in the applicable jurisdiction.
Ogletree Deakins will continue to monitor and report on developments with respect to the COVID-19 pandemic and will post updates in the firm’s Coronavirus (COVID-19) Resource Center as additional information becomes available. Critical information for employers is also available via the firm’s webinar programs.